Nobody's Catching Up to Netflix

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Rick Aristotle Munarriz has been a Motley Fool contributor since 1995, specializing in tech and consumer stocks. He's been part of the analyst team for the Motley Fool Rule Breakers newsletter service since its 2004 launch, serving as portfolio lead for the real-money Motley Fool Supernova service since its 2012 debut. Beyond amassing close to 20,000 bylines in that time, Rick still finds the time to tend to his collection of travel and entertainment websites through Siteclopedia.com and perform improvisational comedy at Miami's Just The Funny.
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AP/Elise Amendola
There may come a day when Netflix (NFLX) faces a legitimate challenge to its video streaming throne, but that day isn't coming anytime soon.

Netflix moved higher after posting another quarter of blowout results on Wednesday night. It closed out 2013 with more than 44.3 million streaming subscribers worldwide, well ahead of the midpoint of its earlier outlook calling for 43.6 million Web-based accounts. It expects to have 48.2 million streaming members by the end of March.

Even if we back out Netflix's rapidly growing yet still unprofitable international operations, we're looking at a platform with 33.4 million streaming subscribers. There are also 6.9 million homes that still receive DVDs and Blu-ray discs from Netflix by mail, but let's stick to the streaming platform that clearly defines Netflix and accounts for more than 80 percent of its revenue these days.

Streaming Along

With every passing quarter Netflix is getting bigger and stronger. Yes, there are rival services out there, but they can't seem to do anything to slow Netflix's market dominance. Let's go over a few likely and not-so-likely competitors.

Hulu Plus was the first rival mentioned by Netflix in its quarterly shareholder letter so let's start there. Hulu has become a popular source for current episodes of TV shows. It's also showing a keen ability to get video buffs to pay up for its premium Hulu Plus platform. Netflix points out that even though there's been disarray at the top of Hulu with three CEOs last year, that it's been able to grow its paid subscribers by 65 percent last year. However, Hulu's concentration on TV shows makes it an incomplete platform.

Amazon.com (AMZN) is the closest threat to Netflix, but even it is light years away -- for now. Amazon's Prime Instant Video offers a similar digital buffet to what Netflix is serving, though naturally far leaner in content. However, Amazon makes it available at no additional cost to its millions of Amazon Prime members. Amazon has some advantages over Netflix. It owns a popular content-delivery network, and a server farm capable of delivering its content in a cost-effective manner. It also sells new movie releases and fresh TV shows as digital downloads and rentals, ultimately giving it an even larger digital vault. Amazon also has the Kindle Fire tablet line, which is gaining ground and giving it another avenue to lure people to its platform. Amazon is the one to watch, but it has a long way to go to catch up to Netflix.

Beyond Hulu and Amazon you have HBO through HBOGo, Redbox Instant, and the various platforms being rolled out by cable and satellite television providers to keep customers from cutting the cord.

Netflix Takes its Next Step

By the end of March, Netflix expects to surpass 35 million domestic streaming subscribers. It's been able to stick to its $7.99 a month price, but it appears that may not last much longer -- at least not for everyone.

In its note to shareholders on Wednesday, Netflix discusses pricing tests that it's been conducting. It hopes to eventually offer three different pricing plans. One would think that the $7.99 a month plan will remain intact, but Netflix is emphasizing that existing members will receive "generous grandfathering" of their current pricing.

New plans? New pricing? These are the kind of changes that could make the environment ripe for a competitor to step in and gain market share. However, nobody else is close to serving up more than a billion hours of content a month the way that Netflix has for more than a year. That's the kind of scale that makes it economical to pay up for licensed content and take gambles on original programming.

Netflix is getting bigger with every passing quarter, and everyone else is shrinking in the service's rear-view mirror.